If you are making contributions to a savings plan, whether employer-sponsored or to an individual retirement arrangement, you maybe eligible to a tax credit. This tax credit is designed for low-to-moderate income earners saving for their retirement. Depending on your income and filing status, you could get up to 50% of your savings for your retirement and could be claimed in addition to deductions to your Individual Retirement Account. Up to $2000 may be claimed by couples filing jointly or $1000 if filing individually.

The IRS has issued the following six things you need to know about the Retirement Savings Contributions Credit:

1. Income Limits

The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and income of:

• Single, married filing separately, or qualifying widow(er), with  income up to $27,750
• Head of Household, with income up to $41,625
• Married Filing Jointly, with income up to $55,500

2. Eligibility requirements

To be eligible for the credit you must have been born before January 2, 1992, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.

3. Credit amount

If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

4. Distributions

When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.

5. Other tax benefits

The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

6. Forms to use

To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.

For more information, review IRS Publication 590, Individual Retirement Arrangements (IRAs), Publication 4703, Retirement Savings Contributions Credit, and Form 8880. Publications and forms can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

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